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Introduction The increasing focus, on Social and Governance (ESG) factors by the European Union (EU) is making waves worldwide with Malaysia feeling its effects well. The ambitious ESG measures seek to encourage business behaviors and ensure that companies are responsible, for their environmental influence. This piece delves into the EU ESG guidelines. How they could impact businesses in Malaysia. Corporate Sustainability Due Diligence Directive (CSDDD) In May of 2024, the EU Council gave light to the CSDDD, a groundbreaking law. It requires companies working in the EU as those heavily involved, in the region through operations or supply chains to carry out thorough due diligence. The aim is to uncover and address any impacts on rights and the environment. This involves an evaluation of both their activities and those of partners, in their supply chain. Implications for Malaysian Businesses: a) Market Access: Malaysian companies need to adhere to the CSDDD to enter the EU market successfully. Non-compliance may lead to penalties and limitations. b) Proactive Approach: It’s crucial for Malaysian businesses to prioritize ESG frameworks establish due diligence procedures and maintain transparent reporting practices. Environmental Concerns: Moving Towards a Greener Malaysia The European Union’s focus on sustainability is evident, in its ESG agenda. Although Malaysia has made progress by enacting the Energy Efficiency Conservation Bill 2023 more measures are required. Important aspects to consider are: Emissions Management: Focus, on managing emissions by giving importance to eco practices and investing in energy sources. Resource Efficiency: Enhance resource efficiency by minimizing energy waste and taking steps to manage resources effectively. Responsible Sourcing: Maintain a commitment, to sustainable sourcing methods to ensure procurement practices. Social Responsibility: Building Inclusivity and Equity The social aspect of the EU’s ESG framework is, in harmony, with Malaysia’s initiatives to address forced labor enhance employee well-being and foster a workplace atmosphere. Nonetheless, the EU’s guidelines call for heightened attention to areas: Human Rights: Make sure to focus on the well-being of employees and tackle any breaches. Fair Labor Practices: Implement methods, for sourcing materials. Diversity and Inclusion: Encourage a varied and fair work environment. Opportunities and Challenges for Malaysian Businesses 1. Opportunities: a) Reputation Enhancement: Embracing ESG principles can enhance a company’s reputation. b) Investor Attraction: Responsible investors seek ESG-compliant companies. c) Market Expansion: ESG opens doors to new markets. 2. Challenges: a) Investment: Implementing ESG practices demands a financial commitment. b) Cultural Shift: Companies need to adjust to a culture centered around sustainability. Strategies for Compliance Malaysian businesses can thrive by proactively engaging with the EU’s ESG landscape: 1. Build a Strong ESG Framework: Develop comprehensive policies, procedures, and reporting mechanisms. Address environmental, social, and governance issues. 2. Conduct Due Diligence: Identify and mitigate risks across operations and supply chains. 3. Engage with Stakeholders: Communicate ESG initiatives transparently to investors, customers, and employees. 4. Stay Informed: Monitor evolving EU ESG regulations and adapt strategies as needed. Conclusion and Way Forward In wrapping up and looking ahead the EUs strong emphasis, on ESG factors is reshaping the business scene with Malaysia following suit. As Malaysian businesses navigate this changing landscape here’s a strategic plan: Embrace ESG as a Key Priority: Understand that ESG goes beyond compliance; it’s a priority. Align your business objectives with sustainability and ethical practices. Establish Strong ESG Frameworks: Create policies, processes and reporting systems. Involve stakeholders to ensure their support and dedication. Conduct Thorough Due Diligence Across Operations and Supply Chains: Thoroughly evaluate human rights issues and environmental impacts. Collaborate with supply chain partners to boost transparency. Give Priority to Environmental Sustainability: Work on reducing emissions promoting resource efficiency and adopting eco practices. Consider investing in energy sources. Promote Social Responsibility: Encourage fair labor standards, diversity and inclusivity. Proactively address any human rights issues. Tackle Challenges with Resilience: Acknowledge the investment needed for ESG practices. Foster a culture of sustainability, within your organization. Stay up, to date. Adjust: Keep an eye on EU ESG regulations, trends and top practices. Modify your approaches accordingly. Malaysian businesses must stay updated on these EU projects to succeed in a world market that values ESG more and more. Engaging with the ESG initiatives of the EU proactively can help businesses not adhere to regulations but also set themselves up for success, in a world market that is changing quickly. This calls for a dedication to sustainability, transparency and ethical business behaviors, which will eventually pave the way for a fair future, for Malaysia. References: 1.       Yeoh, L., & Teo, S. (2024). ESG in Malaysia: So much to gain so act now without second thoughts or miss out. Retrieved from: https://focusmalaysia.my/esg-in-malaysia-so-much-to-gain-so-act-now-without-second-thoughts-or-miss-out/ 2.       Sippel, H. (2024). Three ESG-related laws from the EU every Malaysian company should know about. Skrine Insights. Retrieved from: https://www.skrine.com/insights/alerts/january-2024/three-esg-related-laws-from-the-eu-every-malaysian 3.       The Star. (2024, February 28). Five Trends in 2024 for Malaysia as Mandatory ESG Reporting Becomes Global Norm. Retrieved from: https://www.thestar.com.my/news/nation/2024/02/28/five-trends-in-2024-for-malaysia-as-mandatory-esg-reporting-becomes-global-norm Author’s Profile: Dr Ifrah Bukhari is a Business Analyst at Softech360, where she leverages her expertise in IT consulting to champion sustainable business practices. Certified in Business Automation, ESG risks and climate change, she guides organizations through the complexities of sustainability, offering strategies to meet their ESG goals. As a published author, Dr. Bukhari uniquely combines IT and sustainability, providing innovative solutions that ensure long-term organizational value and contribute to a greener future.

  Introduction: ESG (Environmental, Social, and Governance) investing has undergone a remarkable transformation over the years, stemming from various initiatives aimed at fostering sustainable development. This blog delves into the historical development of ESG, tracing its roots from early exclusionary practices to its current proactive role in responsible investing. Moreover, we will explore the diverse platforms that have emerged to support ESG principles, driving positive change in the world of finance. The Origins of ESG: The origins of ESG can be traced back to the 1960s when investors began excluding certain industries, such as tobacco or those associated with apartheid, from their investment portfolios. This initial form of socially responsible investing laid the groundwork for subsequent developments. However, it was in the 1980s that the first recognizable version of ESG emerged, with the introduction of Environmental, Health, and Safety (EHS) regulations in the United States. The Rise of Corporate Sustainability: Throughout the 1990s, the concept of corporate sustainability gained prominence as an extension of EHS practices. Organizations recognized the need to surpass mere compliance with environmental regulations and adopted proactive measures to reduce their ecological footprint. This shift in mindset marked a significant milestone in the ESG journey, as companies acknowledged their responsibility towards the environment. The Era of Corporate Social Responsibility: As the new millennium dawned, attention expanded beyond environmental concerns to encompass social issues. The early 2000s witnessed the rise of Corporate Social Responsibility (CSR), emphasizing the importance of businesses engaging with and addressing social challenges. Companies began integrating philanthropy, community involvement, and fair labor practices into their operations. ESG as a Proactive Movement: In the 2010s and beyond, ESG gained momentum as a proactive movement rather than a reactive one. Investors and companies alike recognized the direct impact of ESG factors on financial performance and long-term sustainability. Consequently, ESG considerations became integral to investment decision-making and corporate strategy. The Business Case for ESG: Today, ESG is no longer perceived as a niche or optional approach. Multiple studies have demonstrated the positive correlation between robust ESG performance and financial returns. Investors now understand that considering ESG factors can mitigate risks, enhance brand reputation, and drive innovation. Consequently, institutional investors, asset managers, and individual investors are increasingly integrating ESG criteria into their investment strategies. Different Platforms for ESG: Over the years, various platforms have emerged to support the advancement of ESG principles. These platforms include sustainability indices, such as the FTSE4Good and Dow Jones Sustainability Indices, which provide investors with benchmarks to evaluate companies’ ESG performance. Additionally, global reporting frameworks like the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD) offer guidelines for companies to disclose their ESG-related information in a standardized and transparent manner. Over the years, various platforms have emerged to support the advancement of ESG principles. These platforms include: The Science-Based Targets initiative (SBTi): The Science Based Targets initiative (SBTi) is a collaborative effort between CDP, UNGC, WRI, and WWF. It provides a framework for companies to set science-based targets (SBTs) to reduce greenhouse gas emissions in line with the goals of the Paris Agreement. SBTs are based on the best available scientific knowledge and help companies contribute to global efforts to mitigate climate change. The SBTi offers guidance, resources, and tools to support companies in setting and achieving their SBTs, driving innovation, enhancing reputation, and attracting investment. By aligning with SBTs, companies can manage climate risks and seize opportunities in the low-carbon economy. The Sustainability Accounting Standards Board (SASB): The SASB provides industry-specific standards for sustainability disclosure. These standards are designed to be cost-effective for companies and decision-useful for investors. They are developed through a rigorous process that includes evidence-based research, market consultation, and public comment. By providing specific metrics and guidance for each industry, SASB enables companies to report on material ESG factors most relevant to their sector, facilitating comparability and transparency in ESG reporting. The Transition Plan Taskforce (TPT) Disclosure Framework: The TPT Disclosure Framework recommends disclosure of a company’s strategic climate ambition, implementation and engagement approaches, governance and accountability arrangements, and financial plans. By disclosing this information, companies provide investors with better forward-looking information, allowing them to assess the company’s future prospects more accurately. The TPT Framework helps companies communicate their plans and actions related to the transition to a low-carbon economy, supporting investors in making informed decisions. International Sustainability Standards Board (ISSB): The ISSB is a newly established global sustainability standard-setting board that aims to develop a comprehensive set of sustainability standards for companies worldwide. Expected to launch in 2022, the ISSB will operate under the oversight of the International Financial Reporting Standards Foundation (IFRS). The ISSB’s objective is to provide a unified framework for sustainability reporting, ensuring consistency, comparability, and reliability of ESG disclosures across industries and jurisdictions. Carbon Disclosure Project (CDP): The CDP is a widely recognized platform that encourages companies to disclose their environmental impact, particularly in relation to greenhouse gas emissions and climate change. The CDP provides a comprehensive system for companies to measure, manage, and disclose their environmental data. By participating in the CDP, companies demonstrate their commitment to transparency and accountability in addressing climate-related risks and opportunities. The Future of ESG: Looking ahead, ESG is set to continue its upward trajectory. With increasing awareness about climate change, social inequality, and corporate governance issues, investors are demanding greater transparency and accountability from companies. Consequently, businesses are integrating sustainability practices into their core operations, focusing on long-term value creation and aligning their strategies with the United Nations Sustainable Development Goals (SDGs). Conclusion: ESG has evolved significantly from its humble origins, progressing from a narrow exclusionary approach to a comprehensive framework for sustainable investing. As we move forward, it is crucial for companies and investors to recognize the intrinsic value of ESG considerations. By embracing ESG principles, we can collectively drive positive change, create a more sustainable future, and ensure the well-being of both our planet and society. The emergence of various platforms dedicated to ESG, such as the SBTi, SASB, TPT, …

ESG Then and Now: The Evolution of Sustainable Investing Read More »

Introduction The blending of Environmental, Social and Governance (ESG) principles, with Artificial Intelligence (AI) offers an opportunity for companies and investors in Malaysia. As the nation aims for development recognizing the obstacles and adopting trends in ESG AI fusion is crucial. In this blog we delve into the unique context of the Malaysian market, discuss the hurdles faced, and highlight innovative pathways towards a responsible and resilient future. The Regulatory Landscape 1. Mandatory ESG Reporting: Malaysia has taken proactive steps to enforce ESG reporting requirements for publicly listed companies. Bursa Malaysia has strengthened its Sustainability Reporting Framework to align with global standards, boosting investor trust and promoting compliance with ESG guidelines. Capital Markets Malaysia (CMM) has recently introduced the Simplified ESG Disclosure Guide (SEDG) to support Small and Medium Enterprises (SMEs) in integrating ESG practices. Although optional, the SEDG assists SMEs in remaining competitive and meeting the expectations of stakeholders. 2. Budget 2024 and Sustainability Goals: The focus on sustainability is evident in Malaysia’s Budget 2024, intending to achieve carbon neutrality by 2050. The National Energy Transition Roadmap (NETR) and the New Industrial Master Plan 2030 (NIMP) align with the recently introduced National Industry Environmental, Social, and Governance Framework (i-ESG Framework). Impact Measurement and Reporting Impact measurement and reporting are crucial for demonstrating the positive social and environmental effects of companies and investments in Malaysia. While ESG integration focuses on internal risk management, impact measurement extends beyond compliance to quantify outward impact. This provides a pathway for Malaysia to attract impact investors and achieve sustainable development goals. As emphasized by Gray et al., “what gets measured, gets done,” resonates with impact entrepreneurs and businesses alike. Sustainable Investing With Malaysia facing a significant financing gap in achieving the United Nations Sustainable Development Goals (SDGs), sustainable investing plays a vital role in bridging this gap by channeling private sector investment towards impactful initiatives. Impact entrepreneurs, in multistakeholder partnerships, disrupt the status quo and develop innovative solutions aligned with the SDGs. By integrating ESG considerations and impact measurement, investors can identify promising investees contributing to sustainable development in Malaysia. Challenges in ESG-AI Integration 1. Data Quality and Consistency: Ensuring the quality and consistency of ESG data, for AI integration is a challenge due to diversity and fragmentation. Businesses in Malaysia face obstacles with standardized ESG data impacting AI model effectiveness. Overcoming this hurdle involves investing in governance frameworks quality assurance processes and partnerships with data providers to enhance the trustworthiness and uniformity of ESG data sources. It’s crucial to consider context and cultural nuances when evaluating ESG metrics to guarantee the significance and precision of AI-generated insights, within the market. 2. Algorithmic Bias and Fairness: Ensuring algorithmic fairness and mitigating bias are critical challenges in ESG-AI integration for businesses operating in Malaysia. Biased algorithms can perpetuate inequalities in ESG decision-making, leading to unintended consequences and ethical concerns. To navigate this challenge, companies need to prioritize the development of bias-aware AI models that consider diverse perspectives and undergo regular audits to identify and address bias. Implementing transparent and accountable processes for algorithmic decision-making is imperative to build trust with stakeholders and uphold ethical standards in ESG initiatives leveraging AI technology. 3. Interpretable AI Decisions: The need, for clarity and understanding in AI decision-making, presents a hurdle for companies aiming to incorporate ESG factors into their activities in Malaysia. Stakeholders seek clarifications and perspectives on how AI algorithms reach ESG-related conclusions to ensure responsibility and reliability. Striking a balance between the intricacy of AI algorithms and comprehensibility is essential for promoting comprehension and approval of AI-generated insights. Organizations should focus on creating AI methods like representations of models and tools, for interpretation to improve the openness of ESG decision-making processes and encourage stakeholder involvement. 4. Energy Efficiency and Environmental Impact: The use of AI technologies consumes a lot of energy, which is a concern, for businesses in Malaysia that want to be environmentally conscious while using AI for ESG projects. It’s crucial to find a balance between getting insights from AI and saving energy to ensure operations. By implementing energy AI solutions like optimizing algorithms and using cloud-based resources, computing companies can reduce the impact of AI in ESG efforts. Companies need to track the energy consumption of their AI systems and develop strategies to improve energy efficiency while making the most out of AI-driven sustainability projects. Future Trends 1. AI-Driven ESG Analytics: The growing use of Artificial Intelligence (AI) tools, in assessing Social and Governance (ESG) factors in the market is a significant upcoming trend. AI’s ability to analyze amounts of data, recognize trends, and forecast ESG risks offers companies insights for making well-informed decisions. As businesses in Malaysia work towards improving their ESG performance and meeting sustainability objectives incorporating AI-driven analytics helps them uncover hidden connections identify emerging risks and optimize resource distribution efficiently. The integration of AI technology, into ESG evaluations is projected to stimulate innovation and effectiveness ultimately fostering business practices and positive environmental and social outcomes. 2. Blockchain for ESG Transparency: The adoption of blockchain technology to enhance ESG transparency and data integrity is a growing trend in the Malaysian market. Blockchain’s decentralized and tamper-resistant nature makes it an ideal platform for securely storing and sharing ESG-related information, ensuring transparency and accountability in reporting practices. By leveraging blockchain-based ESG reporting platforms, businesses in Malaysia can streamline data verification processes, enhance stakeholder trust, and demonstrate their commitment to sustainability and ethical business practices. The piloting of blockchain solutions for ESG transparency is poised to revolutionize how companies manage and disclose their ESG performance, paving the way for greater accountability and credibility in the Malaysian business landscape. 3. NLP for Unstructured Data Insights: The incorporation of Natural Language Processing (NLP), into ESG reporting procedures is a growing practice that holds the potential to unveil insights from data sources within the Malaysian market. NLP technology allows companies to derive information and sentiment analysis from ESG reports thereby enhancing decision-making processes and strategic planning efforts. By utilizing NLP capabilities for analyzing data organizations …

Challenges and Future Trends in ESG-AI Synergy: Navigating Sustainability in the Malaysian Market Read More »

Introduction: In today’s business landscape, the integration of Environmental, Social, and Governance (ESG) factors has transcended mere compliance—it has become a strategic imperative. As companies strive for sustainable growth, they grapple with the dual challenge of balancing profitability with societal and environmental impact. ESG considerations now occupy the forefront of corporate strategies. However, the path to accurate ESG reporting is fraught with complexities, especially in the era of AI-enabled solutions. Companies must ensure precise ESG reporting while navigating the intricacies of AI-driven technologies. Data integrity, inconsistencies, and the credibility of disclosed ESG information weigh heavily on investors and stakeholders. To address these challenges, a strategic approach is essential—one that seamlessly integrates responsible AI practices with core ESG principles. By harmonizing technology and sustainability, organisations can drive positive impact while maintaining transparency and trust. The Emergence of AI in ESG Reporting 1. Streamlining Data Validation through AI AI-driven systems play a pivotal role in ESG reporting by automating critical processes. These systems conduct cross-validation of information, validate ESG data, and detect inconsistencies or irregularities. The automated validation process ensures data accuracy, minimizes errors, and enhances the credibility of disclosed ESG information. This, in turn, instils confidence in investors and stakeholders regarding the reliability of reported ESG metrics. Noteworthy examples include: – RepRisk employing advanced ML algorithms to analyse ESG risks. – Global Forest Watch utilizing AI to analyse satellite imagery for timely conservation interventions. – Owl Analytics integrates ESG data into investment strategies with human quality control. – IBM leveraging AI for sustainable investments and energy management. These tools empower investors and organizations to make well-informed decisions while advancing sustainability objectives. Despite the efficiency and scalability offered by AI, challenges persist, such as data quality, complexity, and energy consumption. Adhering to responsible AI practices is essential to harness the benefits of AI while mitigating associated risks. ESG-focused IT consulting firms play a critical role in enhancing the efficacy of AI-powered ESG software through: a) Customization and Integration: – Tailoring AI solutions to meet specific ESG reporting requirements. – Ensuring seamless integration of AI tools into existing systems to facilitate efficient data processing and accurate reporting. b) Ethical AI Development: – Advocating for responsible AI practices that consider ethical implications, avoid biases, and align with ESG principles. c) Education and Training: – Educating organizations on AI capabilities and limitations. – Training teams to interpret insights generated by AI effectively. d) Continuous Improvement: – Monitoring AI performance, adapting to evolving ESG standards, and enhancing algorithms. – Leveraging expertise to drive ongoing enhancements in ESG reporting accuracy and transparency. In essence, these consulting firms bridge the gap between technology and sustainability, enabling organizations to navigate the intersection of ESG and AI effectively. 2. Sustainability Objectives and Responsible AI AI systems, particularly large neural networks, demand significant computing power for training, leading to energy-intensive processes that may conflict with sustainability goals. The energy consumption associated with training deep learning models, especially those with numerous parameters, can strain power grids and contribute to greenhouse gas emissions. The predominant use of electricity from fossil fuels for AI model training indirectly exacerbates carbon emissions, impacting climate change. ESG-focused IT consulting firms address these challenges by: a) Prioritizing Smaller AI Models: – Recognizing the environmental impact of AI and advocating for energy-efficient, smaller models. – Prioritizing smaller models not only aligns with sustainability goals but also enhances interpretability. b) Strategic AI Development: – Guiding organizations on strategic AI deployment to support environmental initiatives. – Advancing responsible AI (RAI) and ESG objectives through environmental advocacy. While AI holds significant potential, responsible practices are vital to mitigate its environmental impact and ensure a sustainable future. By strategically applying AI development to support environmental initiatives, organizations can concurrently advance responsible AI (RAI) and ESG objectives. 3. Balancing AI and Humanity: Responsible AI Development Ethical considerations in AI development, particularly regarding fairness, privacy, and human-centred design, are paramount. Responsible AI development intersects with ESG principles in ensuring ethical AI practices. ESG-focused IT consulting firms play a crucial role in this intersection by: a) Upholding Fairness and Privacy: – Emphasizing fairness in algorithmic decision-making and advocating for equitable treatment. – Safeguarding privacy by handling individuals’ data ethically and transparently. b) Championing Human-Cantered Design: – Promoting human-centred design to ensure AI solutions align with societal well-being. – Infusing ESG principles to prioritize human welfare over profit in AI development. c) Avoiding Blind Reliance on AI: – Recognizing the importance of human judgment alongside AI automation. – Guiding companies to balance AI utilization to prevent unintended consequences. d) Integrating ESG Principles: – Embedding ESG principles into AI development to ensure technology serves people while minimizing harm. – Aligning AI practices with sustainability goals to drive positive societal impact. Responsible AI development, guided by ESG expertise, ensures technology enhances humanity rather than detracting from it. Synergies and Alignment When companies align their ESG and RAI initiatives, they unlock synergies and shared resources, leading to efficient prioritization, resource optimization, and enhanced transparency and trust with stakeholders. The collaboration between companies and ESG-focused IT consulting firms drives positive societal impact and advances both responsible AI (RAI) and ESG objectives. 1. Efficient Prioritization: – Combining core training processes and reporting capabilities to prioritize actions aligned with ESG and responsible tech objectives. 2. Resource Optimization: – Leveraging shared expertise and capabilities for effective resource allocation. – ESG-focused IT consulting firms enhance the alignment of AI systems with sustainability goals. 3. Transparency and Trust: – Transparent ESG reporting, powered by responsible AI, fosters trust with stakeholders. – Companies promoting open communication on societal impact build stronger relationships with investors, customers, and communities. Conclusion: In the dynamic landscape of ESG reporting, where technology and sustainability intersect, opportunities and challenges abound. Responsible AI practices emerge as a beacon, addressing accuracy hurdles while deftly navigating the complexities of AI-driven solutions. ESG-focused IT consulting companies play a pivotal role, in bridging the gap between technology and societal impact. Their guidance ensures that AI aligns with ESG principles, fostering transparency and trust. As we navigate this …

The Intersection of ESG and Responsible AI Read More »